01—Abstract
Summary
Summary of the 10-K filed April 29, 2013. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported net sales of $2.80 billiona for fiscal 2013 (year ended February 28, 2013), up from $2.65 billion in fiscal 2012, with net income of $387.8 million versus $445.0 million a year earlier.
Net sales of the Constellation Wines and Spirits segment rose to $2,796.1 millionb, driven by U.S. base branded wine and spirits volume growth, $55.5 million of net sales from the acquired Mark West and Ruffino brands, and favorable product mix, partly offset by higher promotional spend. Operating income increased to $522.9 million from $486.5 million, while interest expense, net, rose to $227.1 million from $181.0 million as borrowings increased ahead of the pending acquisition. The dominant item in the filing is the pending Beer Business Acquisition, a combined purchase of the remaining 50% of Crown Imports LLC (about $1.85 billion) and the Piedras Negras brewery and perpetual Modelo brand rights (about $2.9 billion), totaling roughly $4.75 billion.
The company expects to fund it with new debt, including a committed $675.0 millionc U.S. term loan and $1.5 billion of term loans to a Luxembourg subsidiary, and expects to complete it around the end of its first fiscal quarter of 2014 or shortly thereafter. Completion is subject to regulatory approvals and to transactions between Anheuser-Busch InBev and Grupo Modelo. The U.S. Department of Justice action, the April 2013 amendments requiring the Brewery to reach 20 million hectoliters of capacity by December 31, 2016, and a 60-day public comment period remain key open items.
At year end, total debt was $3,305.4 milliond, up $175.9 million, and total stockholders' equity was $2,860.3 million. The company repurchased $383.0 million of treasury stock during the year, and the Sands family controls a majority of voting power through its Class B stock.
02—Key points
Key Highlights
- Net sales rose to $2,796.1 million in Fiscal 2013 from $2,654.3 million, with the Constellation Wines and Spirits segment contributing the full amount after the January 2011 CWAE Divestiture.
- Net income decreased to $387.8 million from $445.0 million, while operating income increased to $522.9 million from $486.5 million.
- Interest expense, net, increased to $227.1 million from $181.0 million, reflecting higher average borrowings ahead of the pending Beer Business Acquisition.
- The pending Beer Business Acquisition totals about $4.75 billion, covering the remaining 50% of Crown Imports (about $1.85 billion) and the Piedras Negras brewery and Modelo brand rights (about $2.9 billion).
- Completion is expected around the end of the first quarter of fiscal 2014 or shortly thereafter, subject to regulatory approvals and a 60-day public comment period after the April 22, 2013 court order.
- The company repurchased 14,023,985 Class A shares for $296.7 million under its 2013 Authorization, and total treasury stock purchases were $383.0 million for the year.
- Total debt was $3,305.4 million at February 28, 2013, and the company recorded a $12.5 million loss on write-off of financing costs tied to the redemption of the August 2012 Senior Notes.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Constellation Brands kept $0.12.
- Revenue$3.17B100.0%
- Cost of revenue−$2.06B65.1%
- Gross profit$1.11B34.9%
- Operating costs−$585.4M18.5%
- Operating income$522.9M16.5%
- Interest, other & tax−$135.1M4.3%
- Net income$387.8M12.2%
Where FY2013 revenue went
$3.17B- Cost of revenue: $1.69B, 53% of revenue
- SG&A: $585.4M, 18% of revenue
- Net income: $387.8M, 12% of revenue
- Other operating costs: $375.3M, 12% of revenue
- Interest, other & tax: $135.1M, 4.3% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed April 29, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $3.17B$2.98B | +6.5% |
| Cost of Revenue | $1.69B$1.59B | +6.0% |
| Gross Profit | $1.11B$1.06B | +4.3% |
| SG&A Expenses | $585.40M$537.50M | +8.9% |
| Operating Income | $522.90M$486.50M | +7.5% |
| Interest Expense | $233.90M$187.60M | +24.7% |
| Net Income | $387.80M$445.00M | −12.9% |
05—Questions
Frequently Asked Questions
What is the Beer Business Acquisition and how will it be financed?
The Beer Business Acquisition is the purchase of the remaining 50% equity interest in Crown Imports LLC for about $1.85 billion, plus the Piedras Negras brewery and perpetual brand rights for the Modelo Brands for about $2.9 billion. The company expects to finance the approximately $4.75 billion purchase price with available cash and debt, including a committed $675.0 million U.S. term loan, $1.5 billion of term loan facilities to a Luxembourg subsidiary, an accounts receivable securitization facility, notes or debt securities, and revolver borrowings. A fully committed bridge financing is in place through December 30, 2013.
What conditions must be met before the acquisition closes?
Closing is subject to receipt of required regulatory approvals and the consummation of certain transactions between Anheuser-Busch InBev and Grupo Modelo. On April 22, 2013, the District Court signed the Stipulation and Order and Proposed Final Judgment, permitting the transactions subject to a 60-day public comment period under the Antitrust Procedures and Penalties Act. Private parties may also bring antitrust claims, which management believes are baseless.
What obligations did the company accept under the April 2013 amendments?
The company must build out and expand the Piedras Negras brewery to a nominal capacity of at least 20 million hectoliters of packaged beer annually by December 31, 2016. The U.S. will have approval rights, in its sole discretion, over amendments to the agreements and over any extension of interim supply arrangements beyond three years. The filing also states that the Brewery currently has the capacity to fill approximately 60% of current projected product requirements.
How did the company's operating results and cash flow look in Fiscal 2013?
Net cash provided by operating activities was $556.3 million, compared with $784.1 million in Fiscal 2012. Capital expenditures were $62.1 million, and the Mark West acquisition cost $159.3 million. Gross profit rose to $1,108.3 million from $1,062.1 million, and selling, general and administrative expenses increased to $584.7 million from $521.5 million, including $27.7 million of transaction costs tied to pending and completed acquisitions.
What are the main risks to investors identified in the filing?
Key risks include failure to complete the Beer Business Acquisition, which the filing says could cause the stock price to decline; substantial additional indebtedness of about $4.75 billion; dependence on a single Brewery for Modelo Brands supply; limited experience operating in Mexico; and a cap of $500 million on ABI's indemnification for breaches of representations under the SPA. The Sands family also controls a majority of combined voting power.
06—Continue